John Ivison: Despite what seems, the U.S. in a much better position than Russia after Putin's Crimean adventure

President Barack Obama threatened Vladimir Putin with “broad-based” sanctions that would target the energy and financial sectors, if Russia continues to gobble up the territory of its neighbours.

Mr. Putin, who knows that western Europe relies on his $160-billion in oil and gas exports, was probably not quaking in his boots.

At a press conference in The Hague Tuesday, Mr. Obama was asked if the threat was hollow, coming from an America whose influence is declining. The tone of much of the commentary is that a resurgent Russia is thumbing its nose at an impotent and waning United States.

But, according to one of the world’s foremost energy experts, the map of world energy is being redrawn in front of our eyes — and not to Mr. Putin’s advantage.

Daniel Yergin, the Pulitzer Prize winning author of The Quest – Energy, Security and the Remaking of the Modern World, said the energy revolution in the United States has created a “new dimension” to American foreign policy, while “the bloom is off the rose” of Russian energy production, in part because of the flight of capital in the wake of Mr. Putin’s Crimean adventure.

“I think it [cheap domestic energy] bolsters U.S. power by making the U.S. more competitive in the world economy,” said Mr. Yergin, the founder of the consulting firm IHS Cambridge Energy Research, who was in Ottawa on a speaking engagement.

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“Putin right now will not worry about U.S. LNG [liquefied natural gas] exports — it won’t affect his decision-making about Ukraine. But it will affect markets half a decade from now.”

While the U.S. economy is benefitting from low-cost, domestic shale gas and tight oil — Mr. Yergin estimates $114-billion in new investment in the U.S. manufacturing sector in the next five years because of cheaper energy — the Russian economy is likely to suffer from a chill in new capital.

“One of the consequences of this is going to be that European and North American businesses will recalculate their risk, in terms of investing in Russia,” said Mr. Yergin. “Russia was relying on foreign investment to bolster its economy, but you can just imagine the discussions in boardrooms when you say you want to invest in Russia.”

Official Russian statistics suggest capital flight has reached $35-billion in the first two months of the year. The ruble has tumbled in value and the economy is on the verge of recession — a combination of a decline in investment and a slowdown in consumer demand.

Mr. Yergin said the rational calculation is that Russian expansionism will stop in Crimea.

“Ukraine is a core political national interest for Putin. The notion was not allowing the home of the Russian fleet to become part of a NATO-aligned country. He has now achieved his objectives — he’s secured the port and bolstered his popularity. Crimea was different, but I do think the rational Russian reaction is to now stabilize the situation.”

Mr. Yergin said there would be little choice but to impose energy sanctions, if Mr. Putin goes further. He said there would be “collateral damage” from energy sanctions.

“I was in Germany last week and a lot of people in government don’t want to go to phase three [energy sanctions] because they are vulnerable — Russia supplies 35% of their gas.”

But he said there will be pressure across Europe to increase domestic gas supplies — his consultancy estimates Germany could produce one-third of its own gas needs within 15 years — in addition to the search for alternative suppliers of gas.

Stephen Harper has said that Canada is prepared to accept the downside of taking a hardline with the Russians. “We will not shape our foreign policy to commercial interests when it becomes a global security crisis like the Ukraine-Russia situation,” he said in The Hague.

Those Canadian businesses with operations in Russia have made their disquiet with the government’s antagonistic line known — Kinross Gold called for a more “balanced approach.”

But Mr. Yergin said the impact in North America would be limited. “Russia is a source of platinum and titanium for building airplanes. But, by contrast, there are 6,000 German companies with operations in Russia.”